97% Of Traders Are Failures?

Nick Radge · 24 November 2005

The house edge at the casino is 3%. IE 97% of people dont lose.

This is incorrect.

The house takes 3% of all funds wagered.

You cannot compare trading to a casino. They are mathematically non-comparable. A player at a casino (ex a card counter on blackjack) can never win regardless of their skill because of the maximum bet size and payout limitations. A trader on the other hand has the ability to create their own betsize and payouts.

happytrader · 24 November 2005

Hi there

With regard to card counters.

I saw this documentary on SBS months ago about these US students at a particular campus who had all learnt to 'count' They used to hit the Casinos as 'individuals with varying disguises and table personas' but they were all working as part of a team. They were making millions and really living it up.

The casino wanted to know why they were lossing money. So they started watching very closely. Jealousy got them dobbed and facial identification technology tipped off the casino to these students. The students were profiled and later couldn't even make it through the door. All new students of that campus are still profiled today. Casinos are THE absolute specialists in security and they take lossing money extremely seriously. Individual counters are observed and thrown out very quickly.

Cheers
Happytrader

It's Snake Pliskin · 24 November 2005

GreatPig said:
The primary difference is the level of skill involved.

With one or two exceptions, casino games have no element of skill what-so-ever. The only rule that applies is that the more you play, the more likely you are to get the average return, which is always less than 100%. A regular player has no advantage over a complete novice.

Trading, on the other hand, involves an element of skill. If it didn't, professional traders like Daryl Guppy would have no advantage over anyone else, and would ultimately tend towards the average return, which is 100% minus the brokerage rate.

For comparative purposes, 100% return means just getting your money back, not doubling your money (that's how returns are usually stated with gambling games).

Cheers,
GP

Gambling is negative expectant, and the longer you gamble you are assured of going broke. Casinos are designed to keep you gambling in order to take your money. The longer you keep gambling the more you will lose. You may have one win here and there but you will go broke - it's assured. Lotteries included!

With share investing and trading, the longer you do it the more you will make - providing you have used some judgement, used probability to your advantage when stock picking and selling. Oh, and your system must be positive expectant; something gambling isn't.

tarnor · 24 November 2005

I'm gunna head off to the casino for some texas hold em down one of these days, only game i would consider playing in a casino,..

I dead set recommend anyone who wants to do short term trading spends some good quality time playing texas hold em ..www.poker.com great way to learn when to hold em, when to fold em and when to go all in..

for example a day trade starts to go against you.. tis ime to quickly fold with that tight stop.. instead of clinging onto the river hoping for the other dt's to pump it back up for you... and when to raise your stakes when its a sure thing...

probably gunna get flamed for this post but i can honestly say playing poker has helped my trading in so far has handling emotion and risk probability.. etc lol
cheers

brerwallabi · 25 November 2005

I can not see any relationship between poker and trading. Poker is pure gambling you get beaten if someone holds a better hand then you and then you lose all.There is a risk element in both but in poker play a hand (make a trade) and you don't win you lose all, make a trade (play a hand) and it goes sour you don't lose all, you lose some. I am not adverse to a bet, Saturday arvo down the RSL with a few mates and have a $100 for a few bets, I do it for a social thing but I know most of the time I am going to lose, expect to lose, even if occasionally I have a few wins.Trading is a different thing, my expectection is I am going to win even if I take some losses and I do win, but should I expense my hard earned money because I do work for it in trading to find out if I am successful or not. $30 for a book is not much, $5k for some trading instruction/package is, all I want to do is have the unit or penthouse on the beach with my lady as soon as possible and never have to trade again. I don't know how successful I am because I can't benchmark myself and if only 3% are profitable then there is huge opportunity. There would be a structure of success in the 3%, I still doubt the figure, so has everyone in the 3% read or a written a book,is that what makes the structure - more knowledge, so what happens when we all became expert traders will the 3% change.

BraceFace · 25 November 2005

Another thing to consider when comparing trading to casino's....

Nobody in their right mind would would try and make sense of candlestick graphs, company announcements, trendlines etc after knocking back half a dozen orange whips and a few fluffy cocktails with their mates on a Friday afternoon. :drink: :screwy:

Alcohol and irrational emotion help to give casinos the edge.

Commonsense, research and strategy at least give the trader some remote chance of having a win.

money tree · 25 November 2005

tarnor said:
I'm gunna head off to the casino for some texas hold em down one of these days, only game i would consider playing in a casino,..

I dead set recommend anyone who wants to do short term trading spends some good quality time playing texas hold em ..www.poker.com great way to learn when to hold em, when to fold em and when to go all in..

for example a day trade starts to go against you.. tis ime to quickly fold with that tight stop.. instead of clinging onto the river hoping for the other dt's to pump it back up for you... and when to raise your stakes when its a sure thing...

probably gunna get flamed for this post but i can honestly say playing poker has helped my trading in so far has handling emotion and risk probability.. etc lol
cheers

:iagree:

YES YES YES !!!

I had never played poker before a few days ago. But I quickly saw the similarities between trading and poker. No other game lets you take control over your losses, and lets you out with a small loss. Most games are win or lose the whole wager, no control over outcome. So I agree POKER is excellent training for trading discipline.

speaking of discipline, I will start another thread on it.......

Nick Radge · 25 November 2005

There are two core issues working against most people who wish to trade. One I explain in my book is the need to be right. That's ingrained in us as we grow.

However, the other is the requirement for gratification. This has come from Evolutionary Theory which suggests that we are more prone to accept an earlier and smaller reward rather than wait for a very large reward at some stage further on.

Ask yourself how often you are in a winning position and the only thing that enters your mind is that the market could reverse? This is gratification coming to the surface. You would prefer to take the profit and get the gratification rather than allow a potentially larger gain develop. When we're in a profitable trade we should think, "well, prices can go down, but they can also keep going up". But we don't, we think they will always go back against us.

These two issues are core psychological impediments that exist within us, and both work against creating a positive expectancy. You need to override them in order to be successful.

Nick

RodC · 25 November 2005

Nick Radge said:
Ask yourself how often you are in a winning position and the only thing that enters your mind is that the market could reverse? This is gratification coming to the surface. You would prefer to take the profit and get the gratification rather than allow a potentially larger gain develop. When we're in a profitable trade we should think, "well, prices can go down, but they can also keep going up". But we don't, we think they will always go back against us.

I know what you mean, I've sometimes found myself in a winning trade almost wishing my trailing stop would get hit just so I could realise the profit.

Now that I'm using a more systematic approach I find it much easier to resist this temptation to take early profits and hang on for the larger ones.

Rod.

Milk Man · 25 November 2005

How could these uni guys count cards these days? Doesnt everywhere have those shuffling machines? I did it a couple of times a couple of years ago- about doubling my capital. But that was with about 1 deck just cut off so the system still worked. Does anyone know?

If anyone is thinking of counting cards it is bloody hard; nearly made my head explode (and my iq is about 120). And casinos dont like it coz they cant handle their own medicine. I can give you guys the basic principle if you want; its just probability and money managment giving positive expectancy. Just like trading!

money tree · 25 November 2005

Nick Radge said:
Ask yourself how often you are in a winning position and the only thing that enters your mind is that the market could reverse? This is gratification coming to the surface. You would prefer to take the profit and get the gratification rather than allow a potentially larger gain develop. When we're in a profitable trade we should think, "well, prices can go down, but they can also keep going up". But we don't, we think they will always go back against us.

I call this "irrational exiting". Seems to be very common, even among highly successful, highly experienced traders. Often I see traders in my chatroom enter a long position. All goes well. The stock rises a fair bit. Then, for absolutely no reason, they decide to sell. I get quite annoyed.

here is an actual conversation I had with the best trader I know:

Trader X is long and places a sell order with the stock still rising.

me: "hey X, you reckon ABC stock is a short here?"

X: "hell no! Its a long!"

me: "well if its a long here, why are you putting in a sell order? Is there something on the chart that says sell?"

X: "chart does not say sell. its not a short order, its exiting a long"

me: "and theres a difference?....a sell order is a sell order. Your position prior is irrelevant. Why would you place a sell order when the chart says buy?"

he thinks about that for a minute, then says: "I guess you are right, I never thought about it like that. I do always exit my longs too early. So you think I should wait for a sell signal?"

me: "well you may never get one. But certainly exiting for no reason whatsoever is not the way to go. You dont have to wait for a sell signal, but you can at least wait until the buy signals stop"

X: "good point. Will give it a try"

Milk Man · 25 November 2005

I call this "irrational exiting". Seems to be very common, even among highly successful, highly experienced traders. Often I see traders in my chatroom enter a long position. All goes well. The stock rises a fair bit. Then, for absolutely no reason, they decide to sell. I get quite annoyed.

here is an actual conversation I had with the best trader I know:

This could work in theory if a profit target strategy were in place could it not? If he is the best trader you know I assume thats because he makes the most money. Maybe this is why. What do you reckon?

money tree · 25 November 2005

I have no idea how much money he makes. What I do know is that he picks direction very well. he is the first to admit he is not perfect and often complains that he should have let his profits run. As I said, he could not give a reason for the exit, certainly not a 'profit target'.

Profit targets are a good strategy, but only in conjuction with very tight stops, and must be decided before entry.

The reason I said this to him, and the reason I am repeating it here, is this:

He is a far superior trader to me. But, I have a trait he admires. I have absolutely no issue with letting profits run. He calls it "infinite patience". Just recently, I shorted GBPUSD @ 7782, and did not cover until 7160. How many traders would let a profit run to over 600 pips? On the flipside however, I am usually the worst at cutting losses early, so I rank myself pretty low overall. The reason I usually dont cut losses quickly is because I need justification.....ie a sell signal. Sometimes this is little further down. Im not one for selling just because I am a few pips/ticks behind. I like to wait for support/trendline to be lost. Personally I think tight fixed stops are superior....I just dont have the mental ability to do it every time. It seems illogical to sell when you have a buy signal.

Anyway, I thought it might be valuable to hear how I think with regards to letting profits run.

Milk Man · 25 November 2005

money tree said:
I have no idea how much money he makes. What I do know is that he picks direction very well. he is the first to admit he is not perfect and often complains that he should have let his profits run. As I said, he could not give a reason for the exit, certainly not a 'profit target'.

Profit targets are a good strategy, but only in conjuction with very tight stops, and must be decided before entry.

Ive heard it said that entries are not the most important part of any strategy. Obviously its handy to know when something is going to go up, dont get me wrong. Imagine how good this guy would be if he could pick exits as well as entries. Unless he knows and its just a cut and dry case of him pulling the trigger too early. Maybe a profit target strategy would be best for him.

Happy · 25 November 2005

A thought:

Superior entry man should just do that and leave it to superior exit man to call it a day.

Maybe you can open a joined account, could be rewarding,

It's Snake Pliskin · 25 November 2005

money tree said:
:iagree:

YES YES YES !!!

I had never played poker before a few days ago. But I quickly saw the similarities between trading and poker. No other game lets you take control over your losses, and lets you out with a small loss. Most games are win or lose the whole wager, no control over outcome. So I agree POKER is excellent training for trading discipline.

speaking of discipline, I will start another thread on it.......

Yes, I agree that poker is like trading in a few ways.
You don't need technical analysis or fundamental analysis, but you need money management and MUST determine your risk and reward for each hand. If it's not worth it take a small loss. If it's worth it and the balance of probabilities is in your favour go for it - if your competitor is a novice more than likely he doesn't have his risk to reward thought out and is gambling. The good poker player is not. He is working. And will take advantage of the situation by reading faces etc. It's a zero sum game just like trading so there is only one winner.

I will try the Vegas competition oneday after I have my poker plan/system backtested and find it is positive expectant.

GreatPig · 25 November 2005

Julia,

Julia said:
In your comment above "100% return means just getting your money back, not doubling your money", presumably you mean this just as far as gambling is concerned, not with reference to share trading?

e.g. if I paid $1000 for some shares, paid $50 brokerage to buy and the same to sell, and at the time of selling they were worth $1200, then I have made 10% after deducting brokerage?

I think it's just a convention in the gaming industry, especially with respect to poker machines.

When they say 100% return, they mean whatever bet you place, you get 100% of it back again - ie. only your bet back, no profit. So it's not 100% profit, just the ratio of money back to money spent.

With investments, when you say you made a 10% return you mean a 10% profit. With poker machines, that would be called 110% return.

Cheers,
GP

happytrader · 26 November 2005

Happy said:
A thought:

Superior entry man should just do that and leave it to superior exit man to call it a day.

Maybe you can open a joined account, could be rewarding,

Thats an excellent strategy happy. However, I remember suggesting that to one particular trader who thought they would get their marriage mate (who was quite concerned about the losses) to exit on the stops. But when the time came to do as instructed the partner somehow turned into an 'analyst' and decided against exiting to their trading accounts detriment.

Actually I'm a loser this week and self inflicted too, by the way. I make around 8 to 10 trades per month. Usually 2 of those are losses.

My weak points are greed and hope driven.

Example

No.1 Mistake - Getting in on the second day (double dipping - greed and hope)

No.2 Mistake - Not taking a sure quick 20% as soon as it is offered usually within hours. (holding out for more - greed and hope)

Funny now that I'm proof reading this I can see how I'm disguising greed as hope.

I can assure you that if I did neither of those things I would be a millionaire many times over. I would not mind at all having someone take care of the exits.

Cheers
Happytrader

Double Six · 26 November 2005

if most traders are failures, then I suspect it is because they

1- Do not treat it as a business.
2- Are amateur gamblers, with egos.
3- Simply not suited to trading environment.

How many of you think you would be good brain surgeons ?
Then why the hell do you think you would be good traders ?

Dreamers all !

tarnor · 26 November 2005

No.2 Mistake - Not taking a sure quick 20% as soon as it is offered usually within hours. (holding out for more - greed and hope)

I'm with ya on this one, one mistake that I fall into is eagerly working out how much of a killing i'm making each time it clicks up and tantalising myself with overly ambitious fantasies.. or sometimes things like working out whats the 1k profit mark on this trade caue that would feel so much better then 1k :/..

I do alot better when i just focus on being in tune with the momentum.. instead of trying to decide in my head what i would like the market to do for me...

I also noticed that when i started and my day trading parcel was small (money i was totally prepared to lose) i was way less attached to it emotionally .. after a bit of success and it had grown substantially, a lot more fear came into play... have to force myself to remember this is still the small parcel that i'm 'playing' with...

like
i'm stuck in CAZ atm.. got one trade in the 90's out on close above a dollar.. went back the next day got 1 good trade, came back for another and caught the trading halt by 3 seconds.. it looks pretty good now but at the time the amount of concern it caused wasn't to flash, was only going for a quick trade on a run towards the close.. I'm going to split it up into smaller parcels after this so i can trade it with less emotion...

tis still all learning for me but i seem to be doing exponentially better out of day trading/short term then when i was med/long term.. as for successful trader let see how it goes over along period of time...

97% Of Traders Are Failures?

Nick Radge

happytrader

It's Snake Pliskin

tarnor

brerwallabi

The Oracle

BraceFace

money tree

Nick Radge

RodC

Milk Man

money tree

Milk Man

money tree

Milk Man

Happy

It's Snake Pliskin

GreatPig

Pigs In Space

happytrader

Double Six

tarnor

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